Many Canadians struggled to earn money during the COVID-19 pandemic and took advantage of the Canada Emergency Response Benefit to supplement their overall income. Those same CERB recipients are now wondering whether CERB is taxable, and how much money they owe to the federal government.
In this blog we’ll explore the issue of CERB and taxes, including whether Canada Recovery Benefit counts as taxable income, how to work out how much you owe in taxes, and what to do if you can’t afford your CERB tax bill.
What is the Canada Emergency Response Benefit (CERB)?
According to the federal government’s own figures, approximately 8.5 million Canadians claimed the Canada Emergency Response Benefit during the coronavirus pandemic.
COVID-19 impacted businesses in every industry across Canada and led to a drop in demand that left millions of Canadians in a financially precarious position. The government designed CERB as a short-term financial support system for the people and families at risk.
As long as you fit the eligibility criteria, you could claim up to $500 for a maximum of 48 weeks in order to support yourself and your family during the pandemic, and the size of the payments you received were worked out based on your previous earnings.
Do I need to repay CERB?
It depends whether you were overpaid. In order to provide financial support quickly, the Government launched the Canada Emergency Recovery Benefit (CERB) for employed or self-employed individuals without initially demanding proof of eligibility.
It was decided that proof would be asked for at a later date, and it’s now estimated that hundreds of thousands of Canadians who received the CERB and other pandemic benefits may have been overpaid or completely ineligible.
The Government is now chasing down individuals who were paid in good faith without meeting the criteria, and the Canadian Revenue Agency (CRA) has sent over 500,000 letters seeking CERB repayment.
Does CERB count as taxable income?
Yes – even if you received the correct amount in CERB payments and don’t owe money to the government for the benefit itself, CERB is a taxable benefit, meaning you will owe money in CERB taxes.
It might seem strange that you owe money on a benefit you’ve likely already spent, but again it comes back to the ’emergency’ aspect of the Canada Emergency Response Benefit.
The government’s main aim in rolling out CERB was to get financial support to the public as quickly as possible, so it was decided that while CERB would be taxable, those taxes would be applied retrospectively.
By contrast, the benefit that is replacing CERB – the Canada Response Benefit – will see taxes deducted from the payments before they are made, as a way of ensuring people don’t feel out of pocket in future.
How much will my CERB tax bill be?
Even though CERB payments are taxable, you may be confused about the best way to work out how much tax you owe on CERB payments you received.
The system is actually simpler than you might think. To work out how much you owe the Government in taxes, they will simply add up all of your available income – regardless of the source – and tax you a percentage of the total figure. This figure will include your CERB payments.
According to the website of the Canada Revenue Agency (CRA), income tax is set at the following levels:
- 15% on your first $49,020 of taxable income
- 20.5% on your next $49,020 of taxable income
- 24% on your next $53,939 of taxable income
- 29% on your next $64,533 of taxable income
- 33% on any taxable income above $216,511
That means your total taxable income will be based on the sum total of everything you earn, and what tax bracket that pushes you into. You can use the government’s online tax calculator to work out roughly what you owe.
Are there any tax exemptions for CERB?
If you don’t earn enough income
There is a minimum income threshold you need to clear to be eligible to pay tax in Canada, and the same rules apply when it comes to CERB payments and your tax obligations.
For the 2020 tax year, the federal basic personal amount was $13,229. If you received the maximum benefit amount of $500 for a period of 28 weeks or less, you wouldn’t have cleared the tax threshold, therefore you wouldn’t owe any tax on your CERB payments.
If you’re a student
While CERB is taxable, many students in Canada won’t be forced to pay tax on the benefit due to the federal basic personal tax credit, which can be used to offset tax on the first $13,229 of income they earned in 2020, plus tuition tax credits.
In practice, this means that many students in Canada can earn an income of Most students can earn approximately $20,000 (including the CERB payments they receive) before being needing to pay tax on those payments.
Are CERB and Employment Insurance (EI) taxed the same way?
Many people in Canada who have received CERB payments are also recipients of Employment Insurance (EI), a temporary income support payment designed to help unemployed people during the hunt for a new job.
If you receive both, you may be wondering if you’ll be hit with a double tax bill when it comes time to make your CERB tax return. Well, you can relax – while both EI and CERB are taxable, they’re taxed in a different way.
While CERB tax is back-dated, meaning you have to get your own returns in order at the end of the tax year, EI tax is withheld at source, so your taxes have already been deducted before the payment arrives in your bank account.
What if I can’t afford to pay taxes on CERB?
If COVID-19 put you and your family in financial difficulty, it’s understandable if you took advantage of CERB money to alleviate some of that strain. Now that many people are facing hefty CERB tax bills, however, you might be left wondering how you’re going to pay it.
That’s where we can help. A. Fisher & Associates is a Licensed Insolvency Trustee that offers several different solutions that can make life much easier.
To get advice on repaying your tax bill, or guidance on your finances more generally, get in touch with the experts at A. Fisher & Associates today.